Oscar Chaffey is a full-time medical student in Sydney with nearly $50,000 in HECS-HELP debt — and it’s only growing.
Their studies began in 2018 with a Bachelor of Science, majoring in anatomy. Last year they started a four-year postgraduate medical degree.
Oscar’s student debt currently sits at just over $47,000, which equates to about $5,000 per semester spent in college.
“I think it’s almost a truism that I worry about almost $50,000 in debt that’s only going to increase by tens of thousands of dollars before I can afford to pay it off,” they told SBS News.
Tens of billions of outstanding debt
Oscar is one of almost three million Australians facing increased repayments on their outstanding loans.
Since June 1 this year, the indexation rate applied to education and training loans such as HECS-HELP has increased to 3.9%, compared to 0.6% in 2021 and the highest in 10 years.
“I have two more years of study, and by then I expect [my debt] to swell to over $70,000, both due to escalation and the $10,000 to $11,000 annual medical graduate student contribution,” Oscar said.
Before the COVID-19 pandemic – between 2018 and 2020 – the indexation rate hovered around 2%.
How much student debt is owed?
According to data from the Australian Tax Office (ATO), 2.9 million people had unpaid HECS-HELP debt in 2020-21, totaling more than $68.7 billion.
The average amount of debt outstanding per person was $23,685, up from $23,280 a year earlier.
This means that the higher rate would increase the average amount of debt by about $923. For Oscar, that means over $1,350. Previously, their escalations ranged between $75 and $200.
“$1,350 is not an abstract amount of money for me or for most students,” they said.
“It’s depressing that in Australia, a country where education was once seen as a public good, young people are now expected to go into so much debt to get an education.”
“Student Debt Balloon”
National Union of Students President Georgie Beatty said students were grappling with what is becoming a “massive financial burden” as they also faced cost of living pressures.
“This loan becomes just another hurdle in an already inaccessible higher education system,” she told SBS News.
Ms Beatty, who is an arts student herself, said students are ‘accumulating debt which will delay them from having a family, buying a house and keeping them in poverty longer.
“They are just trying to survive and get through. And all the while they have this student debt balloon hanging over their heads,” she said.
As a full-time student expected to devote 40 hours a week to their studies, Oscar says they cannot pay voluntary contributions towards their debt or earn enough to offset it.
On top of that they feel the burden of Sydney’s rental market.
“It’s a tough time for college students, and I’m far from the most vulnerable or necessarily sympathetic example,” they said.
“The financial stress of this type of debt completely prevents higher education for many people, especially in an environment where the cost of living is increasingly out of sight.”
HECS-HELP is an interest-free loan system, but indexed to inflation.
The ATO claims that indexing maintains the real value of the loan by adjusting it for changes in the cost of living, as measured by the Consumer Price Index (CPI), which is the commonly used inflation indicator.
What are those behind HECS saying?
Emeritus Professor Bruce Chapman of the Australian National University (ANU) was one of the architects of the HECS system.
He said the scheme – designed to help students attend university without paying an upfront fee – means the government pays a university for a place, which the student pays for later, based on income.
“In a world with some inflation, if there is no indexation, in real terms the government would receive less than it paid,” he told SBS News.
“So indexing is a way to adjust the stock of debt to take into account the time it takes to pay it back, so that the government doesn’t subsidize too heavily.
“It’s kind of like an interest rate, but it’s still a subsidized interest rate.”
Prof Chapman said the rise in indexation is ‘not a surprise’ as ‘we have always had an adjustment for price inflation’.
“In terms of HECS-HELP, it really doesn’t matter that much in my opinion, because it’s still about adjusting the debt just for the real, real value of that debt. So if it was really huge, say 30%, you would start to see that it might have some behavioral effects – but only as long as wages don’t keep up with prices.
Currently, inflation is at 5.1%, its highest level in 20 years, the rate . Wage growth in Australia stands at 2.4%.
Professor Chapman said the HECS-HELP debt adjustment is “not very significant” and will have no consequence until a person reaches the end of their repayments.
“If the total stock of debt is adjusted upward by a nominal amount of 4%, it has no consequences for you in the short term,” he said.
“What it does is it adds to the nominal stock of debt you have, which will then make HECS repayments slightly longer than before.”
He predicts that the rate increase will have no “behavioral” effects, such as changing how people choose to enter the labor market.
But Ms Beatty argued that for some it cannot be understated.
“I mean, as someone who works very little, minimum wage jobs…that’s a lot of money,” she said.
She said the increased cost of some degrees, under a policy of the former coalition government, also made the problem worse.
In 2020, the then government adopted its funding policy to provide more “work-ready graduates” by encouraging students to consider studying in high priority sectors.
As part of the changes, fees for courses leading to jobs in sectors such as health and teaching have been reduced, while the cost of already popular degrees, such as arts and law, have increased.
Student contribution for Law and Business increased by 28% and 113% for Humanities. Cost contributions have been maintained to apply to students from 2021.
Ngaire Bogemann is studying a Bachelor of Arts in Melbourne and was among the first cohort of students affected by the policy changes.
“My situation is quite unique because I’m majoring in both politics and international studies and French, which puts me in a very strange position where half of my degree has gone up in price, and the other half my degree has come down in price,” she told SBS News.
She said she pays about $450 for a French subject and just under $2,000 for political subjects, which can impact the overall cost of a semester.
Ngaire Bogemann is an arts student in Melbourne who was impacted by the former coalition government’s Jobs Ready graduate scheme. Source: Provided
As a casual worker who lives away from home, Ms Bogemann said she finds the prospect of HECS-HELP debt “daunting”.
“To me, knowing that I have so much accumulated debt, aspiring to own a house or buy a car or do any of those big adult things, it seems really unattainable,” she said. .
“And I feel a lot of pressure now to get a job where I can start paying off my HECS debt and do it faster.”
She said having “another layer” added to the cost of living pressures “makes me feel a lot of dread”.
A spokesman for the Department of Education said a review of the Jobs Ready Graduate Package will begin in the second half of this year, in line with the timetable set by the previous government.
Ms Beatty welcomed a review of the package and said a change would ‘change the lives of so many students’.
What should I do if I fight?
HECS-HELP helps people repay student dues once their income reaches a certain level.
Under the 2022-23 thresholds, graduates must begin repaying their HELP loans when they earn more than $48,361 at a rate of 1%. Higher salaries lead to higher reimbursements, those earning between $62,739 and $66,502 pay 3% and those earning between $88,997 and $94,336 pay 6%. This increases to 10% for those earning more than $141,848.
The department spokesperson said HELP payments are a fixed percentage of your income, so they don’t increase unless your salary does. They said those who are having difficulty should contact the ATO to discuss their options.